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| Version 4 | Version 5 |
|---|---|
| Hammond urges calm over pound flash crash | Hammond urges calm over pound flash crash |
| (about 1 hour later) | |
| Chancellor Philip Hammond has responded to the flash crash in sterling saying that market turbulence is to be expected, but the UK economy is fundamentally strong. | Chancellor Philip Hammond has responded to the flash crash in sterling saying that market turbulence is to be expected, but the UK economy is fundamentally strong. |
| The pound was pummelled in the currency markets in Friday Asian trading, with traders blaming concerns over Brexit and a flash crash that hit the market. | The pound was pummelled in the currency markets in Friday Asian trading, with traders blaming concerns over Brexit and a flash crash that hit the market. |
| The pound briefly fell 6% to $1.1841, the biggest move since the Brexit vote. | The pound briefly fell 6% to $1.1841, the biggest move since the Brexit vote. |
| Sterling later recovered most of those losses but remained 1.3% lower. | Sterling later recovered most of those losses but remained 1.3% lower. |
| Analysts think a news report could have triggered automated trading systems to sell the pound heavily in a short space of time. | Analysts think a news report could have triggered automated trading systems to sell the pound heavily in a short space of time. |
| Ahmed: Chancellor says no 'spending splurge' | |
| Live: Pound gyrates on the currency markets | |
| What happened to the pound overnight? | |
| Viewpoints: How low can the pound go? | |
| Volatility | Volatility |
| Mr Hammond told the BBC: "Some of what happened over night was driven by technical factors, as the Bank of England governor has explained this morning. | Mr Hammond told the BBC: "Some of what happened over night was driven by technical factors, as the Bank of England governor has explained this morning. |
| "Markets will go up and down - markets respond to noises. | "Markets will go up and down - markets respond to noises. |
| "We are going to go through a period of volatility, there will be lots of commentary going on and we can expect to see markets being more turbulent over this period and we should prepare for that. | "We are going to go through a period of volatility, there will be lots of commentary going on and we can expect to see markets being more turbulent over this period and we should prepare for that. |
| "The important thing is to look through the movements of currency markets and short term movements of sentiment.... we go into this period of turbulence fundamentally strong." | "The important thing is to look through the movements of currency markets and short term movements of sentiment.... we go into this period of turbulence fundamentally strong." |
| The pound was down 1.7% against the dollar at $1.2421, in afternoon trading in London, with analysts blaming concern over the UK's negotiations to exit the European Union. | The pound was down 1.7% against the dollar at $1.2421, in afternoon trading in London, with analysts blaming concern over the UK's negotiations to exit the European Union. |
| The flash crash aftershocks also briefly pushed sterling below €1.10, for the first time since early 2010. | The flash crash aftershocks also briefly pushed sterling below €1.10, for the first time since early 2010. |
| It also overshadowed the latest data on the US labour market, which usually grabs the attention of the currency market. | It also overshadowed the latest data on the US labour market, which usually grabs the attention of the currency market. |
| The pound is heading for one of its worst weeks against the dollar since the financial crisis, with a loss of around 4% for the week. | The pound is heading for one of its worst weeks against the dollar since the financial crisis, with a loss of around 4% for the week. |
| "The big issue for the pound right now is that it has become detached from the economic fundamentals and politics have become king. This is where things will get dangerous for the currency going forward," said Kathleen Brooks, research director at City Index. | "The big issue for the pound right now is that it has become detached from the economic fundamentals and politics have become king. This is where things will get dangerous for the currency going forward," said Kathleen Brooks, research director at City Index. |
| "Theresa May's hard-line on Brexit negotiations and her insistence that negotiations will take place in private have only increased uncertainty for the market, with traders left combing news websites for the latest headlines to try and gauge for themselves the state of play between the UK and the EU," she added. | "Theresa May's hard-line on Brexit negotiations and her insistence that negotiations will take place in private have only increased uncertainty for the market, with traders left combing news websites for the latest headlines to try and gauge for themselves the state of play between the UK and the EU," she added. |
| Trigger point | Trigger point |
| The Bank of England said it was "looking into" the flash crash. | The Bank of England said it was "looking into" the flash crash. |
| "It's difficult to know exactly what triggered it," Angus Nicholson, market analyst with IG in Melbourne, told the BBC. | "It's difficult to know exactly what triggered it," Angus Nicholson, market analyst with IG in Melbourne, told the BBC. |
| The sharp drop came after the Financial Times published a story online about French President Francois Hollande demanding "tough Brexit negotiations". | The sharp drop came after the Financial Times published a story online about French President Francois Hollande demanding "tough Brexit negotiations". |
| The pound has been volatile since the UK voted to leave the European Union. | The pound has been volatile since the UK voted to leave the European Union. |
| Analysts speculate that a computer may have been set to scan the news for negative Brexit stories, with the order to sell if it found any. | Analysts speculate that a computer may have been set to scan the news for negative Brexit stories, with the order to sell if it found any. |
| The trigger could have also been a simple mistake, or what's know as a fat finger trade, when a trader enters a wrong number. Analysts at JP Morgan who have analysed the flash crash think that was unlikely to be the trigger. | The trigger could have also been a simple mistake, or what's know as a fat finger trade, when a trader enters a wrong number. Analysts at JP Morgan who have analysed the flash crash think that was unlikely to be the trigger. |
| 'Selling pressure' | 'Selling pressure' |
| The incident happened at a time when there is very little pound trading going on - which means that any sell-off will have a bigger impact than during busy hours. | The incident happened at a time when there is very little pound trading going on - which means that any sell-off will have a bigger impact than during busy hours. |
| The situation is likely to have been exacerbated by trading algorithms (sometimes know as algos) - software which is designed to trade automatically and can react much faster than human traders. | The situation is likely to have been exacerbated by trading algorithms (sometimes know as algos) - software which is designed to trade automatically and can react much faster than human traders. |
| "These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for the pound," said Ms Brooks from City Index. | "These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for the pound," said Ms Brooks from City Index. |
| "Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure." | "Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure." |
| Ms Brooks thinks another flash crash could be on the cards for the pound. | Ms Brooks thinks another flash crash could be on the cards for the pound. |
| "This highlights the drawback of machines making trading decisions, however, it is the reality, and it is only getting more popular. Thus, another flash crash is possible," she said. | "This highlights the drawback of machines making trading decisions, however, it is the reality, and it is only getting more popular. Thus, another flash crash is possible," she said. |
| Traders remain nervous about the fallout from the UK's talks with the EU over leaving the bloc. | Traders remain nervous about the fallout from the UK's talks with the EU over leaving the bloc. |
| Last Sunday, the Prime Minister Theresa May said she would trigger Article 50, the clause needed to start the exit process, by the end of March 2017. | Last Sunday, the Prime Minister Theresa May said she would trigger Article 50, the clause needed to start the exit process, by the end of March 2017. |
| Sterling has been "on a precipice" since then, according to Sean Callow, senior currency strategist at Australian bank, Westpac. | Sterling has been "on a precipice" since then, according to Sean Callow, senior currency strategist at Australian bank, Westpac. |
| "I think we've underestimated how many people had money positions for a very wishy-washy Brexit, or even none," he said. | "I think we've underestimated how many people had money positions for a very wishy-washy Brexit, or even none," he said. |
| 'Lose-lose situation' | 'Lose-lose situation' |
| Analysts at HSBC are forecasting that the pound could fall to $1.10 and could be worth just one euro by the end of next year. | Analysts at HSBC are forecasting that the pound could fall to $1.10 and could be worth just one euro by the end of next year. |
| "The argument which is still presented to us - that the UK and EU will resolve their difference and come to an amicable deal - appears a little surreal," said David Bloom, head of foreign exchange research at HSBC. | "The argument which is still presented to us - that the UK and EU will resolve their difference and come to an amicable deal - appears a little surreal," said David Bloom, head of foreign exchange research at HSBC. |
| "It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome." | "It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome." |